Unmarketable title

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doubletrouble

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I bought a parcel of property in 2007 which had two separate tax parcel numbers from the same seller and they closed simultaneously. Seller is a licensed real estate agent. One parcel has a house on it the other is vacant. I financed the vacant lot with a construction loan in order to build a new house and obtained title insurance (as did the lender: same insurer). I bought the house using a different lender but the same title insurer (again, as did the lender). So there were four seperate title policies, two separate legal descriptions and two separate deed transfers. Several months later I sold the parcel with the house and again used the same title insurer (once again for both the buyer and their lender). So that's two more policies from the same insurer for a total of six. Then I went to apply for a building permit. I was told by the building department that if I could not prove that the parcels were never legally subdivided from each other that I couldn't get a permit. I filed a claim with the insurer wo did try very hard to do so, but ultimately failed to furnish that necessary proof. Even so, they denied my claim. Their reasoning (ya gotta love this): it was I who illegally subdivided the property when I sold a portion of it. And not only does the exclusions section releive them from responsibility to ensure that a particular parcel is "buildable", coverage is not provided for insureds that intentionally cause their own problems. And they're sticking to this conclusion. Now what? Sue? Wait to get sued by the folks who bought the house from me? I'd go broke fighting these guys if they just choose to refuse coverage forever. And of course, they know that.
 
illegal subdivision

No one chose to respond to my post last month so I'll try this:

I bought two adjoining parcels of property from the same seller with two separate deeds. We were both under the impression that they were legally subdivided from each other. After I sold one of the parcels I found out that they never were. So at which point did this illegal subdivision actually occur: when I bought the two properties with two deeds or when I sold one of them to someone else? Thank you.
 
See, THIS is why the Torrens registry system is better.

I'm from B.C., Canada, and I'm not familiar with the deed system of title and only passing familiar with title insurance (because the Torrens system essentially negates the need for it). So anything I say may be completely wrong. So I won't say much.

I'll just ask: where are you? And how could one lot get put into two separate deeds, without being subdivided? And if your selling the lot illegally subdivided it (according to your insurer), why wouldn't the previous sales of separate deeds also have subdivided it?
 
illegal subdivision

Washington state. There was the perception of two separate parcels because the total property I purchased was comprised of two "tax parcels" ... each parcel has its own tax account number and the taxes were paid separately. However prior to my purchase these parcels had always been under common ownership. Every sale prior to my purchase was conveyed with just one deed. So that's my issue: which event triggered this illegal subdivision? Was it the conveyance of two deeds to me or the conveyance which ended the common ownesrhip?
 
Why does the property have two tax accounts? Is a "tax parcel" a separate (legal) parcel of land? I'm guessing it's not, because it sounds like there was two tax parcels but only one deed for some time. So, how come there was only one deed to the property prior to the transfer to you? Why did the previous owner sell it to you via two deeds?

I don't know the answers to these questions - they just sound like the sort of questions that might help you figure out your answer.
 
When or why these two parcels were assigned separate account numbers is apparently irrelevent. Until just recently, I believed that any tax parcel is a "legal lot". I also believed that a title company would not insure both properties (separately) unless they believed that each of them was legally created. But it's my insurer's position that they had no such obligation to confirm that prior to issuing separate policies. We got two deeds because we had two lenders involved: a construction loan for the vacant parcel; a conventional lender for the other. Seller went along with it because they, like me, also believed that if the title company would insure each deal separately, then they must believe that they were insuring two separate legal parcels. Both lenders believed that as well. So there's a lot of finger-pointing going on here and there don't seem to be any legal precedents to guide us.
 
What does your title insurance policy say about the insurer's obligations to confirm legal title (both when you bought it and when you sold it)? Are there any laws governing title insurers that might impose this obligation?
 
In a letter to me from the insurer, they "did not make any representation as to the legal status of the parcels you purchased"; and "had no duty to cross reference the parcels in each of the policies you purchased". I am aware of no Washington State laws which either allows them to deny coverage, or compels them to afford coverage. They cited no law or precedent in denying coverage. And unfortunately I have been unable to cite law or precedent to support my position either.
 
Well, I would expect them to say no less. Fortunately whatever legal obligations they might have don't stem from that letter. :) They stem from your contract with them and whatever laws govern title insurance. I'm sure I don't need to tell you this, but you need to go over that policy with a fine tooth comb.

To my mind, the question is not whether they "made any representations as to the legal status of the parcels". Insurers don't typically make representations about the insured. The question is whether they need to pay when the legal status is not what you thought it was. My health insurer doesn't make any representations about my health either. It just pays if something goes wrong with my health.

Let me back up a bit. You said that, up until recently, you believed that any tax parcel is a "legal lot". Is that not the case? Why do you no longer believe it? Would a reasonable person think it was? Perhaps, even if you illegally subdivided the lot when you sold one parcel, you are blameless and did not "intentionally" cause your own problem, and the exclusion doesn't apply.
 
Going back a bit further... There was always only one deed to the property, despite there being two tax parcels, up until the sale to you. Even if the tax parcels aren't legal parcels, there were still two deeds before you got involved. So the previous owner took a property that was titled on one deed and (____) it. What goes in that blank? To my mind, the word is "subdivided". How can you get from one deed to two deeds without subdivision? And here's a question for you - is there a specific legal definition of "subdivision" applicable here?

I think the "common ownership" thing is a red herring. For one thing, there was common ownership of the two tax parcels because there was only one deed for most of the history here. They couldn't have been owned otherwise. For two, the brute fact is that who owns a parcel is irrelevant to its status as a legal parcel. What makes a parcel is that it is a separately legally identified chunk of land. (Or something - is there a specific legal definition of "parcel" applicable here?) Doesn't matter if I own two adjoining parcels - if they're separately legally identified, they're still two parcels. Now, I'm curious about deeds, because I have no experience with them. Did your two deeds you received identify two distinct chunks of land, i.e. two legal parcels?

So there's two avenues of attack - you can argue that the previous owner is the one who illegally subdivided the land by titling it on two deeds, and you can argue that even if subdivision didn't occur until you sold one parcel, your insurer is not relieved from coverage under the exclusion clause because you didn't intentionally cause the problem.
 
Thank you for you interest, dee dub. You've got a pretty good handle on the problem now. Addressing your most recent questions in order: In my research into legal precedents, I found that it's been well-established that tax parcels are not necessarily "legal lots" even if they have had that status for a long time. A "reasonable" person would not know that, however. Some reasonable (and quite knowledgable) people were unwittingly caught up in this thing because "reasonable" does not mean correct. Further quoting from that same letter from the insurer: "Your action in subsequently selling a portion of the Property that you owned resulted in neither of the parcels being 'legal lots'. Had you retained common ownership of the two parcels, there would likely be no issue involving the legal status of the Property."
And yes, there are two distinct legal descriptions for the parcels in question. The boundaries of each are well-defined in each of the deeds and insurance policies. Your analogy with health insurance is quite appropriate. What we have here is an "accident" with injury involved. Let's say, for example, I just bought some new tires for my car. Say one of those a tires is defective and blows out the next day causing me to veer into a guardrail. I am injured in this mishap. Would my health insurer deny medical coverage? Of course not. They would pay and then perhaps seek recovery of those costs from the tire manufacturer. They would not try to deny medical coverage on the premise that I chose to drive my car with a defective tire. But that seems to be the logic in play with this insurer. So it seems to me that the proper course for this insurer should have been to administer the claim fairly, even if it is certain to be expensive and inconvenient, instead of wrongfully citing "exclusions" in the policy. Dee dub, we seem to be on the same page regarding when this subdivision occured. It appears that it was the seller who caused this "accident" and not me. Would you agree with that assessment? And if so, what would you recommend that I do next?
 
Further quoting from that same letter from the insurer: "Your action in subsequently selling a portion of the Property that you owned resulted in neither of the parcels being 'legal lots'. Had you retained common ownership of the two parcels, there would likely be no issue involving the legal status of the Property."
Click to expand...

I would call BS on that. Per my previous message, I think common ownership is irrelevant. I'm not American and not adept at finding American case law, but I would imagine there's legal authority out there that says separate parcels are separate parcels regardless of ownership.

I'm also not sure I agree with the insurer that, had you retained common ownership, there would be no issue of the legal status of the lots. Here's another question - what if you had kept both lots and tried to build on one? Would you have been denied a permit because it was an illegal subdivision? If the answer is "yes", then you KNOW the illegal subdivision had to have happened prior to your purchase.

In any case, saying that "had you retained common ownership, there would be no issue" is silly and irrelevant. If you had retained common ownership, you wouldn't have sold one of the lots, and would have no need for title insurance in the first place.

So what do you do? Your best bet would be a local real estate lawyer. Barring that, I would look around to see if there are relevant legal definitions of "subdivision" and "parcel". I'm curious about those. Then write a letter in response to your insurer outlining the conclusions you've come to. Logic indicates to me that the illegal subdivision occurred when the property was titled on two deeds.
 
And here's where it gets really interesting. In my intial post I said that I bought the vacant parcel with the proceeds from a construction loan. But when I applied for a permit, my app was denied because in their view, there was already a residence on the property. And it was the building department which first decided, and later said so in a letter to me, that the termination of common ownership was when the subdivision occured. That was an arbitrary conclusion but the title company cited that conclusion to defend their claim denial. And the nastiest part of this is that I helped the title company get an "innocent purchaser" status for the buyer of the property I sold, after they (the title company) told me, in writing, that my vacant parcel would attain that same status by default once the other purchaser was declared "innocent" by the County. But no, after approving innocent status for them, the County then declared that I was a "guilty seller" who had forfeited my development rights. So after I helped the title company out of half their jam, they decided to ride that horse, so to speak, and have been riding it ever since.
 
What jurisdiction does the Building Department have to determine when subdivision occurs?

What did you need to do to help the insurer get the other party declared an "innocent purchaser"? I'm concerned you might have screwed yourself there. You should stress to the insurer they promised that you would obtain "innocent purchaser" status. You might be able to make some kind of negligent misrepresentation claim against them.

I feel like I'm nearing the end of my rope (if I'm not already dangling in mid-air), and I hope this has been of some help. I've had a lot more questions than answers. :)
 
Only in South Park do they blame it on the Canadians. You haven't hung yourself. You've been quite helpful, thank you. I don't question that the building department can deny permits on illegally created lots. There are plenty of precedents for that across the state. It's a matter of law and they just have no wiggle room. There's this "Innocent Purchaser" exception within the law. That part is somewhat discretionary but without exception, such determinations render the other party (me, in this case), out of luck regarding development rights. This particular Title company has been involved in such issues over the years so they knew, or at least should have known, that my development rights would be extinguished upon the granting of innocent purchaser to the other party.

Nevertheless, and I'm quoting from a letter written to me by the title company soon after this problem was discovered: "Have the (new owner) apply for Affidavit of Innocent Purchaser, thereby, establishing compliance with local zoning ordinances on their lot and by default or ommission also bring the remaining lot-your lot- into the same compliance. The likelyhood of the affidavit being approved is a virtual lock since the spirit for such an affadivit to exist is for situations that occurred in this transaction". That letter could have said: please shoot yourself in the foot--here's a gun.

But in interest of "spirit" I gave this letter to my realtor, who helped cajole the buyer into submitting this affadivit. Nothing in that affidavit cast any blame whatsoever on me. But just to be on the safe side, or so I thought, I prepared and submitted an innocent purchaser affidavit of my own at the same time. Their's was approved and mine was simply returned to me by the building department.
 
Well I got a letter today from the agency that issued all six of the title policies and reiterated its coverage denial. It concluded thusly: "If you wish to further correspond with me or anyone else with (***) Title please do so through your attorney or other legal counsel." I so understand the insurance plight of the Katrina folks now.
 
You can be prevented from corresponding with someone simply because you're not a lawyer? Crazy. I can understand that speaking with laypersons and trying to educate them about the law may be frustrating, but intelligent people can have reasonable conversations regardless of their legal training.

Someone in another thread the other day had gotten a phone call from a lawyer who would only speak with another lawyer. I told him to tell the lawyer that regular people don't bite. :)
 
Well I'm regular people, I think. But I guess somebody's got teethmarks because the letter was signed by the "new" president of the local agency.
 
And I should probably recall the quote: "... and by default or ommission also bring the remaining lot-your lot- into the same compliance..." by the regular guy former president of this agency.





and by default or ommission also bring the remaining lot-your lot- into the same compliance" quote came from the former president
 
I need a lawyer to represent me

Dee dub is right. At least there seems to be a consensus that he's right. Over the last six weeks I did consult with a local land use attorney, my personal banker, and with anyone else who could wrap their brain around this problem. It wasn't me who illegally subdivided this property but the seller from whom I bought it. But the seller could not possibly accomplish it without the willing participation of the title insurer. So even though the fault for this lies somewhere in limbo between the seller and the insurer, I'm the one stuck with the 250k+ debt secured by a worthless property. Seller denies all responsibility. And of course I'm in the doghouse with my construction lender who has already hinted that they will eventually need to sue me if I can't get this resolved.

Is there an attorney out there willing to help me on a contingency? I can't possibly afford to fund a suit against both Stewart Title and this seller. Thank you.
 
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